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Saturday, December 22, 2012

Is supermarket wine discounting really the problem in the UK?

According to some, the only problem confronting the UK wine trade is the keenness of the supermarkets on half-price wine deals. Of course, those don't help, but I sometimes wonder if the naval-gazing folk who make those comments wander through life wearing blinkers.

On the offchance that this is the case, I took a few pictures with my phone (so apologies for the quality) during a two-hour shopping spree last Saturday. These are just a few of the things I saw on sale at half-price: salmon, ice cream, suits, handbags, glasses, Pringles, vitamins and gifts... Is it any surprise that wine - a luxury in the full meaning of the term - gets treated in the same way as that little list?

9 comments:

No, the half price issue is not the sad fact but the issue that the supermarkets own (like other categories) so much of the wine market in the UK. I am a recent (a month or so) UK resident having moved here from Melbourne, Australia & the same process, though not nearly as bad yet, is happening where the duopoly of Woolworths & Coles are grabbing more of the wine market through 'home brands'. That allows them to cut out the middle man folks & smaller winemakers & keep the $$$ for themselves (check this web site out http://whomakesmywine.com.au/thelist.html). Because of where I have had to settle with my UK partner (Seaton, Devon) we are severely limited in wine choices - been forced online which for me is very unsatisfactory as I have no one to talk with & possibly learn or be pointed to something new & different that I may not be acquainted with...

To answer your question, no. However the trade does have a problem with supermarket drinks discounting in general in that it helps fuel the fires of the anti- alcohol lobby which is one of the pressures driving up duty well above inflation rates and making beer and wine much more expensive in licenced premises putting them under further pressure. Thus the circle closes with the Supermarkets the continual winner. Half Price wine sales though - not a problem.

That wine is treated no differently to handbags or vitamins by the supermarkets is no surprise. The purchasing power of these huge corporations,the - until now- surplus of wine in the world and the willingness of suppliers to sell at margins too little to provide an adequate return on capital simply to maintain market share and keep the bottling lines running have all conspired to force prices down. The Trade has an issue with profitability it seems unable and / or unwilling to address. Perhaps a few years of shortage may help focus the minds of wine suppliers everywhere? I hope so.

Robert - we are dealing with an agricultural good here. The wineries have increased pricing, the grocers want the same margin and promo support, the govt continues to suck the duty out of the wine biz, the UK comprises 4/5 main retailers who sell between 74-80% of the volume in this market so whatever they do has a huge impact. Add on credit tightening by banks and on and on. I don't meant to sound gloomy but you cannot compare cosmetics or beauty care or so on in grocery to the wine category - there is far more margin for the producer and supplier etc. than the wine biz.

Thank you Duncan, Andrew, Anon and Catherine for your considered responses. We agree on many points, but maybe I should address some individually.

Duncan, you're right of course to refer to the distribution power of the UK retailers, and to compare them to what you have seen in Australia where there is now a virtual duopoly. But 70-80% supermarket shares are now common across the world. France's supermarkets have a 70+ share, but offer keen wine drinkers the chance to buy super premium wine at their annual "Foires a Vins".

Australia is also better place to buy wine (including European wine) than the UK, and that's thanks to the fact that your two giants play at the premiership end of the gane - through their Dan Murphy and Vintage Cellars brands in ways that the UK supermarkets don't.

Tesco, like Waitrose, sells some very premium wine online and has recently made a splash with parcels of top Bordeaux, but this is not the same as having a premium retail brand. Revealingly, Tesco HAS moved into arms-length retail coffee retailing (http://thejosephreport.blogspot.co.uk/2012/08/a-rose-by-any-other-name.html) and it's interesting to conjecture whether they might be persuaded to do the same for wine.

Duncan, you also make the essential point about private labels. Yes, these reveal the strength of the retailer, but also the weakness of branding by wine companies. Even the strongest retailers have struggled to create strong Cola or vodka brands.

Catherine, you're right too to point out that wine is a processed agricultural product, but so is a cup of coffee, or a bottle of Hendricks gin - and both of these are sold at premium prices. As I'd argue, is Rachel's yoghurt and Hagen Dasz. And yes, that ice cream is subject to discounting too (as in my photo), it's normal price is a very healthy one for a tub of sugar, milk, cream and air.

As Anon says, the problem lies as much in profitability as in pricing. Basic New Zealand Sauvignon Blanc and White Zin are - or should be - relatively low-production-cost products. It is revealing that the only SKU that Dan Jago says he could not delist is subject to les than half the discounting that afflicts the the bottles on the shelf. Most wine professionals in the UK treat Blossom Hill with disdain, just as most coffee lovers spit at Starbucks. But both enjoy consumer loyalty that makes discounting unnecessary. (The proportion of Blossom Hill that is sold at a discount is under 25%; for everything else, including top Champagnes it's over 60%).

The challenge for the wine trade is to create some Hendricks's of their own. Wines with sufficient margin to allow the marketing that will, in turn, allow sale at full price. Of course, with the big retailers controlling distribution (as they do not for Hendricks), achieving this seems to be near-impossible, but it has to be the target for anyone who cares about solving the UK's woes.

But, and here I move back to Andrew, it may well be that the government (the trade's traditional enemy) and the anti-alcohol lobby, will come to the rescue. The imposition of minimum pricing and the likely ban on deep discounting will change the terrain radically. Ironically, while potatoes, sofas and designer shirts will still be sold at half price in the UK, wine may be liberated from that fate. Whether the wine trade will be up to taking advantage of this new situation remains to be seen.

It is the discrepancy between what consumers want and what producers think they should want.

If wine producers can't sell their wines with a sufficient margin to stay in business, what is then the conclusion? That the consumers are making the wrong choices? Or that it is the distribution chain's and the retailers' fault? Or that the producers are focusing on the wrong things?

Wine is no different than other products. (I'm not saying that all products are the same or that "wine is like toilet paper".) It's not "a special case". Or, it should not be.

Thank you Per. I'm fascinated that my post with arguably the fewest words has attracted some of the clearest and best responses.

Trouble is that, along with other Brits, I've historically been responsible for over-focusing on value, Just think of the Decanter Awards being split into <£10 and >£10. That, to my mind, is the problem in a nutshell.

Wine is a luxury - as necessary to some as skin cream is to others. The difference is that cosmetics manufacturers know how to build value and margin into their products.